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To get approved for a personal loan, credit card, overdraft, mortgage, or any other credit form you will need a good credit score and credit history. A credit score reflects what kind of credit risk you are for a particular lender. The higher your credit score, the more favourable you will be in the lenders’ eyes.
What your Credit Score Means
Whether a lender will be happy to lend you money or not will be affected by your credit score. It can impact how much you’ll be allowed to borrow and what the interest rates are going to be too. Lenders use your credit score to measure your credit-worthiness- or your ability to pay back the money they will let you borrow.
In most cases, a credit score can be largely impacted with your credit history. It shows how much you have borrowed in the past and how badly or well you did in terms of debt management. This is the reason why you might need to build one first before attempting to borrow any money.
Steps on building a credit history
One way of building your credit history is setting up a UK current account and using it. Running it responsibly will demonstrate that you can establish a responsible relationship with your bank.
Setting up Direct Debit helps too. Just see to it that you will have enough funds in your bank account to cover any bills that are to be paid via standing order or Direct Debit. This is brilliant for paying bills such as your insurance, phone, electricity or gas while ensuring that you will not miss any payment.
Things to consider before you apply
After a certain period and your credit history has been built up, you can attempt to apply for credit. It is important to consider which products you should apply for when you shop around. Consider your ability to pay the money that you will be borrowing too. Never borrow beyond your means. Before you will process your application, you will need to meet certain requirements that lenders will expect from you. For instance, you will need to provide your personal and financial information such as your bank account details, the name and address of your employer, how much your monthly income, and pay references.
If you have any existing credit commitment, you will need to disclose these details too. This includes amounts outstanding, credit limits, and other costs. It helps to provide details of the amount of money that comes in and out of your account every month. This way, lenders can see that you have the means to pay off the loan if they decide to grant you one.
Applying for a loan can be a nerve-wracking experience. But there will be times when you need to borrow money to fund some unexpected expense. If and when you need to, you’d want to know if you have a chance of getting approved for one. If you have looked through all your options and decided that a loan is the best option for you, there are some things that you can do to improve your success.
Apply to the Right Lenders
Different lenders will usually have different approaches to the risks involved when dealing with loan applicants. Some have stringent criteria that borrowers need to meet while there are those that would not mind lending money to low credit score borrowers by just increasing the APR or the annual percentage rate.
Your credit score plays a huge role on getting approved or not. A higher credit score means you will likely get accepted. However, a slightly problematic credit score might mean that you will need to look for lenders that specialise in your kind of situation. Soft searches might help you determine the likelihood of getting accepted. Searches like these will not affect your credit rating but will at least allow you to pick lenders who are likely to accept your application.
Build or Improve Your Credit History
Missed and late payments in the past will always have an impact on your credit score. It pays to take the time to improve your rating first such as getting registered in the electoral poll before you start applying for a loan to improve your chances for an approval.
In the same manner, if you have not yet built a credit history and you have not borrowed from the past, lenders will have a hard time establishing how good or not you are with your finances. So, it helps to start building your credit history early on.
You might be able to benefit more from getting a credit card with interest-free purchase options. This would be most apt if you only plan to borrow smaller amounts like £500-$1,000. Getting a card with 0% interest means being able to borrow what you need without the burden of an added interest charge.
A cost-effective option compared to taking out a loan, just see to it that you get the debt completely cleared before the interest charges kick in. You’ll also need to look for a card that offers a long enough term for interest-free payment. This would give you enough time to get the debt paid off before you start getting charged for interest fees. Use this as another way for you to improve your credit score.